Opinion: The curious case of ISIS oil moving through Turkey

Ivan Martchev is an investment specialist with institutional money manager
Navellier and Associates.
Previously, Ivan served as editorial director at
InvestorPlace Media. Ivan was
editor of Louis Rukeyser's Mutual Funds and associate editor of Personal
Finance. Ivan is also co-author of
The
Silk Road to Riches (Financial Times Press).

In the 1997 James Bond film "Tomorrow Never Dies," media baron Elliot Carver uses an encoder device to send a U.K. military ship off course into Chinese territorial waters to provoke a war between China and the United Kingdom.

The goal is to replace the current Chinese government with one that would give Carver exclusive broadcast rights in that country. After reading a Carver media report of the incident as a Chinese attack, the British minister of defense orders the Royal Navy to recover its sunken ship and possibly retaliate, while leaving MI6 and its finest agent, Bond, only 48 hours to investigate its sinking. Bond, as he usually does, diffuses the situation in the last minute, preventing a costly war.

Last month’s downing of a Russian Su-24 bomber jet by the Turkish military after it entered Turkish airspace raises eyebrows. The released Russian radar data show no violation of Turkey's borders, while Turkish radar data show the opposite. One has to wonder if someone got the idea from watching too many James Bond movies, as such systems are highly accurate, and it is unlikely that one of them is hopelessly off the mark.

Why would Turkey, which is fighting ISIS as part of a broad coalition, take down the Russian jet, which was fighting ISIS? Even if the Russian jet did enter Turkish airspace for 17 seconds (as the Turks reported to the UN), the only reasonable conclusion is that the Turkish fighter jet was waiting right there to hit it with a heat-seeking missile while still over Turkey (as the Turks say). It would seem there is precious little time for all of the above-mentioned maneuvers to have happened over Turkish territory.

How could such a rogue attack occur? In a March 2015 paper titled "ISIS Export Gateway to Global Crude Oil Markets," Alec D. Coutroubis, principal lecturer at University of Greenwich in London, and George Kiourktsoglou, visiting lecturer at University of Greenwich, examine the specific evidence of how ISIS moves stolen oil. Coutroubis is well-connected in the Middle East with substantial business activities in the region. The paper has dozens of well-researched references, including witness accounts, which point to Turkey as a major exporting hub for stolen oil.

Taking into account the depth and breadth of referenced sources in their paper and the numerous convoys with oil and petroleum products moving toward the Turkish border, one has to conclude that the Turkish government is well aware of who brings the oil into Turkey and who moves it on the global markets from the major port of Ceyhan. After all, those tanker trucks cross from ISIS-controlled border checkpoints on the Syrian side, and the drivers of the tanker trucks have to document to Turkish customs officials what it is that they are transporting and where it is going, as per standard procedure. It is peculiar, then, to note that as the aerial bombardment of tanker convoys by the Russian Air Force dramatically intensified in recent weeks so as to drain ISIS of the flows of oil money, the Russian bomber was downed by a Turkish military fighter jet.

It is commendable that the U.S. government urged the Turkish government to close the border with Syria on Friday. The question is: Why now, after the painfully obvious dynamics of the stolen oil trade and movement of arms and reinforcements by ISIS has been known for a couple of years? We should not forget that the former name of ISIS evolved from al Qaeda in Iraq.

I was mightily surprised to see that after such a major geopolitical (and seemingly poorly planned) "blunder," the price of oil registered what is known in trading circles by the rather peculiar term of "dead-cat bounce," the idea being that if you throw a dead cat from high enough, it is likely to register some sort of a rebound, but that would not change the fact that it is still dead and it is not going anywhere.

If ISIS oil stops flowing on global markets, the price of oil will likely not budge much; but the price of oil may move higher after a major escalation of the Syrian conflict that seems destined sooner or later to spill over into Iraq, with ISIS on the defensive this time. The price may move quite a bit more if this conflict broadens beyond the Levant. Those are unknowable events, with the caveat that the downing of the Russian jet just made geopolitical spikes in oil more likely.

If we did not have this geopolitical mess at the moment, I think oil prices would be declining. This is the seasonally weak time of the year for crude oil demand and if we add to that the cyclical complications of the No. 1 consumer of oil, China, which has yet to hit an economic bottom, the fundamental backdrop for oil is rather negative.

Keep that in mind next time you try to bottom-fish in the energy sector.

Ivan Martchev is an investment specialist with institutional money manager Navellier and Associates. The opinions expressed are his own. Navellier and Associates holds no positions in any investments mentioned in this article.

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